Dow Jones Industrial Average Lags, Blame Caterpillar!

By Dave Kansas

The broader market is having a decent Friday, with the S&P 500 up about 1, or 0.1%, to 1344, and the Nasdaq Composite up 15, or 0.5%, at 2849.

The Dow Jones Industrial Average? Lagging, down 31, or 0.3%, at 12692.

The divergence stems from the make-up and calculations of the various measures. The S&P 500 is a modified market-cap weighted index, meaning that a company’s market value, based on shares traded, has a bearing on how that company’s stock affects the index.

The Nasdaq Composite has a heavy weighting toward technology, which is having a strong day today, boosted today by SanDisk, KLA-Tencor, Juniper Networks, Apple, Microsoft and Intel. Those gains help explain its outperformance.

As for the Dow Jones Industrial Average, it is a price-weighted index, meaning that a company’s share price action, regardless of the company’s market value or share price, is what moves the index. In other words, a $1 move for a $100 stock has the same impact on the index as a $1 move for a $10 stock.

Today, Caterpillar, one of the DJIA’s 30 components, is having a big, negative impact on the Dow. After weaker-than-expected earnings, Cat’s shares are off $5.75, or 5.3%, to 105.66. Each $1 move in the Dow is worth about 7.6 points to the average, based on the Dow’s math (more below). That means Cat’s move is carving about 43 points out of the Dow, meaning the Dow’s decline is all Cat.

McDonald’s, Hewlett-Packard, ExxonMobil and Coca-Cola are helping offset some of Cat’s impact.

Dow math: The Dow is calculated by tallying up the net move of the 30 stocks in the average. That sum is then divided by the Dow’s “divisor,” which is 0.132129493. Since the divisor is less than one, it acts as a multiplier. Therefore, the math is: $1/0.132129493=7.56833298376, or about 7.6.

China is seeing a slowdown in excavator sales. Now sales at Caterpillar are slowing.

1:05 pm July 22, 2011

Anonymous wrote :

Why not blame the US government for dragging there feet for 2 years or more to get a debt control plan in place or why not blame the European Union for letting spending go uncontrolled after the first bail out money or why not blame the banks for their irresponsible and unethical behaviour.....?

I think this all has alot more impact to the markets than one company like Caterpillar.

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